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G.R. Nos. 198916-17 1.

The parties respective juridical existence;

MALAYAN INSURANCE COMPANY, INC., Petitioner, 1.1 The ASB Group of Companies, which include the
vs. ASB Realty Corporation (now St. Francis Square Realty
ST. FRANCIS SQUARE REALTY CORPORATION, Respondent. Corp.), is under rehabilitation with the Securities and
Exchange Commission (SEC) pursuant to a petition
x-----------------------x dated May 2, 2000;

G.R. Nos. 198920-21 2. [Malayan], as Owner, and [St. Francis], as Developer, executed a Joint
Project Development Agreement (JPDA) on 09 November 1995 for the
ST. FRANCIS SQUARE REALTY CORPORATION, Petitioner, construction, development and completion of what was then known as
vs. "ASB Malayan Tower" ("the Project"), originally a 50-storey
MALAYAN INSURANCE COMPANY, INC., Respondent. office/residential condominium located at the ADB Avenue cor. Opal St.,
Ortigas Center, Pasig City.
DECISION
3. [Malayan] is the absolute and registered owner of the parcel of land
(the Lot) in Pasig City where the Project is located, as evidenced by
PERALTA, J.: Transfer Certificate of Title No. PT-78585 xxx;

This resolves the Petition for Partial Review on Certiorari under Rule 45 4. The Certificate of Registration No. 96-04-2701 issued by the Housing
of the Rules of Court filed by Malayan Insurance Company, Inc. and Land Use and Regulatory Board (HLURB) on 12 April 1996 shows that
the Petition for Review filed by St. Francis Square Realty Corporation, [Malayan] is the Owner and [St. Francis] is the developer xxx;
both seeking to reverse and/or modify the Court of Appeals
Decision1 dated January 27, 2011 in CA-G.R. SP Nos. 109286 and
109298, which affirmed with modifications the Award2 dated March 27, 5. The License to Sell No. 96-05-2844 issued by the HLURB also refers
2009 of the Construction Industry Arbitration Commission (CIAC) in to [Malayan] as the Owner and [St. Francis] as Developer xxx;
CIAC CASE No. 33-2008 entitled "ST. FRANCIS SQUARE REALTY
CORPORATION, Claimant, - versus- MALAYAN INSURANCE COMPANY, 6. The Master Deed with Declaration of Restrictions of the ASB-Malayan
INC., Respondent." Tower dated 13 May 1996 approved by the HLURB and registered with
the Register of Deeds of Pasig City, sets forth Malayan as "the Developer
Malayan Insurance Company, Inc. (Malayan) is a duly-organized (absolute and registered owner) x x x ;
domestic corporation engaged in insurance business. Formerly known
as ASB Realty Corporation (ASB), St. Francis Square Realty Corporation 7. ASB Realty Corporation [now, St. Francis] was not able to complete
(St. Francis) is a duly-organized domestic corporation engaged in real the Project;
estate development.
7.1 The parties executed a Memorandum of
The admitted facts are as follows: Agreement (MOA) on 30 April 2002, under which
[Malayan] undertook to complete the condominium
project then known as "ASB Malayan Project" that but under Sec. 9 of the MOA, "Malayan shall allow one (1)
later became "Malayan Plaza Tower" xxx; representative of [St. Francis] to observe the development and
completion of the Project";
8. The MOA was approved by the SEC;
15. On 24 August 2006, [St. Francis] sent a letter to [Malayan] seeking
9. The Lot was the subject of a Contract to Sell between [Malayan] as to reconcile several items amounting to P133.64 million xxx;
seller and [St. Francis] as buyer, but [St. Francis] was unable to
completely perform its obligation under the Contract to Sell; 16. There was a change in the specification of the floor finish from
Narra Parque[t] to Kendall Laminated Flooring;
10. Under Sec. 2 of the MOA, [Malayan] "shall invest the amount
necessary to complete the Project", among other obligations; 17. [Malayan] made interest expense, amounting to P37,705,346.62 as
of August 2006, as part of its actual construction cost on that date;
11. The basis for the distribution and disposition of the condominium
units is the parties respective capital investments in the Project as 18. [St. Francis] filed a case against the Register of Deeds of Pasig City
provided in Sec. 4 of the MOA; and Atty. Francis Serrano docketed as OMB-C-C-06-0583-J before the
Office of the Ombudsman due to alleged alterations on the
11.1 [St. Francis] represented and warranted to Condominium Certificates of Title over the units comprising the net
Malayan that Malayan can complete the Project at a saleable area in Schedule 4 of the MOA;
cost not exceeding Php452,424,849.00 (the Remaining
Construction Cost [RCC]) [Sec. 9 of MOA]. 19. [Malayan] has included some of the units under Schedule 4 of the
MOA in the condotel pool managed by Quantum Hotels and Resorts
12. The net saleable area included in Schedule 4 of the 30 April 2002 from which it derives income;
MOA ("Reserved Units") originally covered fifty-three (53) units with
thirty-eight (38) parking spaces. The aforesaid 53 Reserved Units 20. Despite the completion of the Project and the turnover of the units
became only thirty-nine (39) units after a reconfiguration was done; to [St. Francis], [Malayan], and other buyers of units, the issue of actual
cost of construction has not been resolved to the mutual satisfaction of
13. The aggregate monetary value of the Reserved Units as fixed by [St. the parties; and
Francis], is One Hundred Seventy-Five Million Eight Hundred Fifty-Six
Thousand Three Hundred Twenty-Three Pesos and 05/100 21. The parties agreed to submit a list of documents that they admitted
(P175,856,323.05); the authenticity and due execution thereof.3

14. Under the MOA, [Malayan] assumed vast powers and revoked all On November 7, 2008, St. Francis filed with the CIAC a Complaint with
authorities previously granted to [St. Francis] (Section 8 of the MOA, Prayer for Interim Relief against Malayan. St. Francis alleged that in
xxx), with the exception of including [St. Francis] in the bidding August 2006, it secured a copy of a document entitled "cost to
committee for bidding of material and services requirements of the complete" from Malayan which fixed the Actual Remaining
Project (Section 9, paragraph v of the MOA, xxx). The general Construction Cost (ARCC) at P614,593,565.96. It disputed several cost
supervision, management and control of the day-to-day operations items in the ARCC, amounting to P145,487,496.42, and argued that
were undertaken by [Malayan] (Section 5, paragraph b of the MOA, xxx) their exclusion would entitle it to some reserved units.
On December 8, 2008, Malayan filed a Verified Answer (With Grounds 2.2.4. Input Value Added Taxes ("VAT") paid
for Immediate Dismissal), claiming that St. Francis failed to state a cause to the government for goods and services
of action because the ARCC had already reached P635,018,369.05 as of utilized from the Project;
November 30, 2008, thereby exceeding the Remaining Construction
Cost (RCC) [P452,424,849.00] by more than the aggregate value of the 2.2.5. Attendance Fees;
reserved units [P175,856,323.05]; hence, St. Francis is no longer
entitled to any of such units. 2.2.6. Alleged Prolongation Costs and
Extended Overhead;
On January 20, 2009, a preliminary conference was held where the
parties stipulated on facts, formulated issues, and drafted and signed 2.2.7. Judgment Award in CIAC Case No. 27-
the Terms of Reference (TOR) which would govern the proceedings of 2007 (TVI v MICO); [Additional issue from TOR
the case. Aside from the above-stated admitted facts, the TOR, which Amendment]
was later amended, listed the following issues to be determined by the
CIAC:
2.2.8. Contractors All Risk Insurance;
2. What is the meaning or scope of the term Remaining Construction
Cost (RCC) as used in the MOA as stated in Par. 11.1 of the Admitted 2.2.9. Contingency Costs.
Facts?
2.2.10 Other costs as mentioned in Exhibit "R-
2.1. What is the meaning or scope of the term "actual 24" [Additional issue from TOR Amendment]
remaining construction cost" as used in the MOA?
3. What is the total capital investment or contribution respectively of
2.2. Specifically, were the following costs and expenses [St. Francis] and [Malayan] to the Project per MOA? [Additional issue
part of the actual remaining construction cost incurred from TOR Amendment]
by [Malayan] and questioned by [St. Francis] to wit:
4. What is the actual remaining construction cost to complete the
2.2.1. Awarded contracts, specifically those Project spent by [Malayan] as of today in excess of [St. Francis]
pertaining to Narra Parquet Works, Interior estimate RCC?
Design Works, Sanitary/Plumbing and Fire
Protection Works, Additional Consultants 5. After completion of the Project and computation of the actual
Fees and Audio Intercom and Paging System; remaining construction costs to complete the same, is [St. Francis] still
entitled to any of the Reserved units in Schedule 4 of the MOA?
2.2.2. Change Orders, pursuant to the
reconfiguration done on several of the units; 5.1. If so, is [St. Francis] entitled to the income therefrom?

2.2.3. Interest Expense from loans incurred to 6. Is [Malayan] entitled to its Counterclaim for the excess in the actual
finance the construction, development and remaining construction cost it incurred vis--vis the value of the
completion of the Project; Reserved Units?
7. Which party is entitled to attorneys fees? GRANTS 37.8% proportionate share of the income realized from
rentals of the Reserved Units up to the present date.
[7.1] How much?
As a consequence of these awards, Respondent [Malayan] is hereby
[8.] Which party shall bear the cost of arbitration?4 DIRECTED to pay the Claimant [St. Francis] its proportionate share in
the income from the Reserved Units.
On March 2, 2009, St. Francis submitted the Joint Affidavit of Witnesses
of Claimant, while Malayan submitted the Joint Affidavit of Respondents FOR THE RESPONDENT [Malayan]:
Witnesses. Thereafter, both parties submitted their respective Joint
Reply-Affidavits. Malayan also filed a Joint Affidavit of Respondents ALLOCATES 62.2% proportionate share of the income realized from
Witnesses by Way of (1) Evidence for New Issue No. 3 Defined under the rentals of the Reserved Units up to the present date
Amended Terms of Reference; (2) Sur-Rejoinder Affidavit of Claimants (P109,304,331.96/P175,856,325.05);
Witnesses; and (3) Redirect Examination.
GRANTS 62.2% proportionate share of the income realized from
Trial ensued during which the witnesses of St. Francis and Malayan rentals of the Reserved Units up to the present date.
testified. Both parties likewise submitted Lists of Exhibits. After trial,
the parties simultaneously filed on April 27, 2009 their respective FOR BOTH CLAIMANT [St. Francis] and RESPONDENT [Malayan], all
Memoranda in the form of Draft Decisions. their Claims and Counterclaims for Attorneys Fees are DENIED.
Arbitration costs are maintained according to the pro rata sharing that
On May 27, 2009, the CIAC rendered its Award, the dispositive portion they had initially shared.
of which states:
SO ORDERED.5
WHEREFORE, AWARD is hereby made as follows:
Dissatisfied with the CIAC Award, both parties filed with the Court of
FOR THE CLAIMANT[St. Francis]: Appeals (CA) their respective Petitions for Review under Rule 43 of the
Rules of Court. On January 27, 2011, the CA affirmed with modifications
GRANT[S] its claims for DISALLOWANCES amounting to the CIAC Award, the dispositive portion of the decision reads:
52,864,385.00 from the ARCC of P614,593.565.96 under Exhibit C-
3; WHEREFORE, premises considered, the CIACs Award is
hereby AFFIRMED subject to the following modifications:
ALLOCATES 37.8% ownership over the Reserved
Units (P66,551,993.09/P175,856,325.05); 1) The total amount of deductions should
be P15,135,166.51 and this is, in turn, shall be
As a consequence of these awards, Respondent [Malayan] is hereby deducted from the Total Actual Remaining
DIRECTED to deliver possession and transfer title over the Reserved Construction Cost of P615,880,672.47 to arrive at the
Units in the proportion hereby stated. Net amount of P600,745,505.96 as computed above;
2) St. Francis should be entitled to 16% ownership Aggrieved by the CA decision, both parties filed their respective
over the reserved units motions for reconsideration, which were denied in the Resolution
(P27,535,668.09/P175,856,325.05) ownership of the dated October 4, 2011. Hence, the present petitions of both parties.
reserved units to be done by drawing of lots with the
corresponding interest thereon; St. Francis raises the following issues:

3) As a consequence of the above awards, Malayan is I.


hereby DIRECTED to deliver possession and transfer
title over the reserved units in accordance and in the The Court of Appeals gravely erred in ruling that interest [expenses]
proportion above-stated and to pay St. Francis its should be part of the actual remaining construction cost. The ruling is
proportionate share in the income from the reserved contrary to law and the evidence on record.
units reckoned from the date of completion of the
Project, that is from June 7, 2006 up to the finality of
this decision, and to render full accounting of all the II.
rentals and such other income derived from said
reserved units so awarded to St. Francis; The Court of Appeals committed serious error in finding that the actual
construction cost is P554,583,160.20. The ruling is contrary to law and
4) Arbitration Costs shall be maintained pro rata in the evidence on record.
accordance with their respective shares in the
reserved units. III.

5) Malayan and all others claiming rights under it, are The Court of Appeals erred in considering VAT as part of the ARCC. This
enjoined from exercising acts of ownership over the is contrary to the facts and records of the case.
reserved units relative to the proportionate share
awarded to St. Francis hereunder; IV.

6) The concerned Register of Deeds is directed to The Court of Appeals committed grave error in allowing the inclusion of
immediately reinstate the name of St. Francis Square the alleged cost of the Contractors All Risk Insurance as part of the
Realty Corporation (formerly ASB Realty Corporation) ARCC. This is contrary to law and the records of the case.
as the registered owner in the corresponding
Condominium Certificates of Title Covering the V.
reserved units herein awarded to St. Francis; and
The Court of Appeals committed grave and serious error on its
7) All other awards granted by CIAC in its Award dated allocation of the reserved units. This is contrary to law and the records
27 May 2009 not affected by the above modifications of the case.7
are affirmed. No costs.
On the other hand, Malayan raises the following issues:
SO ORDERED.6
A. 2. CHANGE ORDERS NOT DUE TO
RECONFIGURATION;
THE COURT OF APPEALS COMMITTED SERIOUS LEGAL ERROR IN
PLACING THE BURDEN ON MALAYAN TO PROVE THAT IT HAD 3. HALF OF THE COSTS FOR THE NARRA PARQUET
ACTUALLY INCURRED THE ARCC, DESPITE THE FACT THAT DURING WORKS;
THE ARBITRAL PROCEEDINGS, ST. FRANCIS HAD NEVER DISPUTED,
AND THEREFORE, ADMITTED, THAT MALAYAN HAD INCURRED THE 4. HALF OF THE COSTS FOR THE COMPREHENSIVE
ARCC. THE COURT OF APPEALS THUS DECIDED A QUESTION OF ALLRISK INSURANCE (CARI);
SUBSTANCE DEFINITELY NOT IN ACCORD WITH THE BASIC LEGAL
PRINCIPLE THAT A PARTY NEED NOT PROVE WHAT HAS NOT BEEN 5. HALF OF THE COSTS FOR THE INTERIOR DESIGN
RAISED, DISPUTED OR PUT IN ISSUE. WORKS;

B. 6. CONTINGENCY COSTS; AND

THE COURT OF APPEALS SERIOUSLY ERRED IN ALLOWING ST. 7. COSTS INCURRED AND/OR PAID AFTER JUNE 2006.
FRANCIS TO BELATEDLY CHANGE ITS THEORY IN ITS DRAFT
DECISION FILED WITH THE CIAC AND ITS APPEAL. THE COURT OF
APPEALS THUS DECIDED A QUESTION OF SUBSTANCE IN DISREGARD E.
OF THE BASIC DUE PROCESS TENET THAT A PARTY CANNOT CHANGE
ITS THEORY AFTER TRIAL OR ON APPEAL BECAUSE IN BOTH CASES THE COURT OF APPEALS SERIOUSLY ERRED IN RULING THAT ST.
THE OTHER PARTY IS DEPRIVED OF THE OPPORTUNITY TO MEET FRANCIS IS ENTITLED TO SOME OF THE RESERVED UNITS.
THE NEW ISSUES. MALAYANS ARCC EXCEEDED THE ST. FRANCIS WARRANTED RCC BY
MORE THAN THE VALUE OF THE RESERVED UNITS. HENCE, ST.
C. FRANCIS SHOULD NOT GET EVEN ONE OF THE RESERVED UNITS.

THE COURT OF APPEALS SERIOUSLY ERRED IN DISREGARDING F.


UNCONTROVERTED TESTIMONIAL EVIDENCE THAT MALAYAN HAD
ACTUALLY INCURRED ITS ARCC, AND FOCUSING EXCLUSIVELY ON THE COURT OF APPEALS SERIOUSLY ERRED IN RULING THAT ST.
DOCUMENTARY EVIDENCE. FRANCIS IS ENTITLED TO THE INCOME RECEIVED BY MALAYAN
FROM ST. FRANCISS (sic) SHARE IN THE RESERVED UNITS, IF ANY,
D. MALAYAN IS ENTITLED TO ALL OF THE RESERVED UNITS. AND EVEN
ASSUMING ARGUENDO THAT ST. FRANCIS IS ENTITLED TO SOME
RESERVED UNITS, THE COURT OF APPEALS DIRECTIVE IS IN
THE COURT OF APPEALS SERIOUSLY ERRED IN EXCLUDING THE DISREGARD OF ARTICLE 1187 OF THE CIVIL CODE.
FOLLOWING COSTS FROM THE ARCC, DESPITE THE FACT THAT THEY
WERE PROPER, NECESSARY AND REASONABLE FOR THE
COMPLETION OF THE PROJECT: G.

1. CHANGE ORDERS DUE TO RECONFIGURATION;


THE COURT OF APPEALS SERIOUSLY ERRED IN NOT AWARDING disturb those findings where the CA and the CIAC are consistent with
MALAYAN ITS COUNTERCLAIMS AS WELL AS ATTORNEYS FEES, AND each other, but will review their findings which are inconsistent and
IN NOT ORDERING ST. FRANCIS TO BEAR ALL THE COSTS OF cannot be reconciled.
ARBITRATION.8
The Court will discuss first the issues raised by St. Francis.
The Court finds partial merit in both the petition for review of St.
Francis and the petition for partial review on certiorari of Malayan. I. Interest expense

In resolving in seriatim all the issues raised by both parties, the Court is The CIAC stated that only costs directly related to construction costs
guided by the rule that findings of fact of quasi-judicial bodies, which can be included in the ARCC because such intention of the parties in the
have acquired expertise because their jurisdiction is confined to MOA can be inferred from the fact that the baseline or starting point for
specific matters, are generally accorded not only respect, but also the determination of the ARCC is the estimate made by St. Francis
finality, especially when affirmed by the CA. In particular, factual based on Schedule 9 of the MOA.11 The CIAC held that the ARCC was
findings of construction arbitrators are final and conclusive and not intended to be spent within and among the four categories above
reviewable by this Court on appeal.9 exclusively, subject to adjustments by reason of price increases and
awarded contracts. It also rejected Malayans theory that costs which
As exceptions, however, factual findings of construction arbitrators are not directly incurred for the construction, but which are actually
may be reviewed by the Court when the petitioner proves affirmatively related to it and to the completion of the building, should be included in
that: (1) the award was procured by corruption, fraud or other undue the ARCC. According to the CIAC, such could not have been the
means; (2) there was evident partiality or corruption of the arbitrators intention of the parties; otherwise, St. Francis would be placed at the
or any of them; (3) the arbitrators were guilty of misconduct in refusing complete mercy of Malayan since the determination of what costs are
to hear evidence pertinent and material to the controversy; (4) one or related to construction is left to the latters entire discretion. Had such
more of the arbitrators were disqualified to act as such under Section been the intention, the parties would have set up standards to guide the
Nine of Republic Act No. 876 and willfully refrained from disclosing discretion in determining what expenses or costs are related to
such disqualifications or of any other misbehavior by which the rights construction so as to be included in the term ARCC. Without such
of any party have been materially prejudiced; or (5) the arbitrators standards, the validity of the MOA would have been questionable, as its
exceeded their powers, or so imperfectly executed them, that a mutual, interpretation would contravene Article 1308 of the New Civil Code
final and definite award upon the subject matter submitted to them was which provides that the performance of a contract cannot be left to the
not made; (6) when there is a very clear showing of grave abuse of will of one of the parties.
discretion resulting in lack or loss of jurisdiction as when a party was
deprived of a fair opportunity to present its position before the Arbitral The CA reversed the CIAC ruling and held that Malayan had to obtain
Tribunal or when an award is obtained through fraud or the corruption loans in order to finance the completion of the project, and in doing so,
of arbitrators; (7) when the findings of the CA are contrary to those of it incurred interests which are deemed as an accessory of such loans. It
the CIAC, and (8) when a party is deprived of administrative due added that actual expenditures should not be limited only to traditional
process.10 Apart from conflicting findings of fact of the CA and the CIAC construction costs as the parties intention was to include those relative
as to the propriety of some arbitral awards, mathematical to the actual completion of the project, for which Malayan had to invest
computations, and entitlement to claim certain costs as part of the in the form of seeking loan facilities from banking institutions in order
amount necessary to complete the project, none of the other exceptions to fully finance the obligations set forth in the MOA. It also stressed that
above was shown to obtain in this case. Hence, the Court will not it was specifically stated in the MOA that the parties investment in the
project would be distributed in accordance with their respective the provisions on investments of Malayan and of ASB. Nowhere in the
contributions provisions of the MOA can it be gathered that interest expense is
included in the computation of the ARCC.
St. Francis contends that interest expense should not be included in the
computation of the Actual Remaining Construction Cost (ARCC). Apart from the ARCCs definition as actual expenditures necessary to
According to St. Francis, the term ARCC should be understood in its complete the project, the closest provision in the MOA that could shed
ordinary context or plain meaning. The word "construction" refers to light on the scope and meaning of ARCC is Section 9 on the Remaining
all on-site work on buildings or altering structures from land clearance Construction Cost (RCC) whereby St. Francis represented and
through completion, including excavation, erection and the assembly warranted that Malayan can complete the project at a cost not
and installation of components and equipment. Plainly, ARCC is the exceeding P452,424,849.00 as set forth in ASBs Construction Budget
actual cost of completing and building the structure which is the Report, which reads:
condominium/project.
Estimated Cost to Complete
Malayan counters that the MOA itself is replete with provisions
recognizing the parties contractual intent to include the ARCC interest I. Balance to Complete Existing - Php
expense and the parties respective capital contributions or investment Contracts 161,098,039.86
in the project. Such intent is confirmed by the parties
contemporaneous and subsequent acts when St. Francis own interest II. Unawarded Contracts 224,045,419.16
expense was credited to determine the number of units it was entitled III. Professional Fee 4,138,108.08
to. IV. Contingencies 63,143,281.10

The Court upholds the CIAC ruling to disallow the interest expense Php 452,424,849.10
from loans secured by Malayan to finance the completion of the project,
and thus, reverses the CA ruling that such expense in the amount of
P39,348,659.88 should be included in the computation of the ARCC. As The Court concurs with the CIAC that the ARCC was intended to be
correctly held by the CIAC, only costs directly related to construction spent within and among the four categories above, subject to
costs should be included in the ARCC. Interest expense should not be adjustments by reason of price increases and awarded contracts. In
included in the computation of the ARCC because it is not an actual construction parlance, "contingency" is an amount of money, included
expenditure necessary to complete the project, but a mere financial in the budget for building construction, that is uncommitted for any
cost. As will be discussed later, the term ARCC should be construed in purpose, intended to cover the cost of unforeseen factors related to the
its traditional "construction" sense, rather than in the "investment" construction which are not specifically addressed in the budget.13 Being
sense. a cost of borrowing money, interest expense from bank loans to finance
the project completion can hardly be considered as a cost due to
unforeseen factors.
It also bears emphasis that part of Malayans investment under Section
2 of the MOA12 is the payment of P65,804,381.00 as the principal
amount of the loan obtained by ASB from the Rizal Commercial Banking That interest expense cannot be considered as part of any of the said
Corporation (RCBC) to finance the project. If it were the intention of the categories is further substantiated by the reports of the Davis Langdon
parties to include interest expense as part of their investments, or even Seah Philippines, Inc. (DLS) and Surequest Development Associates
the ARCC, then the MOA would have expressly indicated such intent in (Surequest), which contain traditional construction cost components
and items, but not investment costs such as interest expense. As the one cost of all construction portions of the project, generally based upon the
who engaged the services of both DLS and Surequest to come up with a sum of the construction contract(s) and other direct construction costs;
valuation of the cost to complete the project and to evaluate what had it does not include the compensation paid to the architect and
been accomplished in the project prior the take-over, Malayan cannot consultants, the cost of the land, right-of-way, or other costs which are
deny that interest expense is not included in their computation of the defined in the contract documents as being the responsibility of the
construction costs. owner.16 Aside from the fact that such expense is not a directly related
construction cost, Section 2 of the MOA states that Malayans
As regards the supposed contemporaneous act of St. Francis of investment includes, among other matters, the amount it had paid to
including the amount of P207,500,000.00 as interest expense in its RCBC, on behalf of ASB, for the principal loan to finance the project, but
claim for reimbursement for its contributions in the project, in the form not the interest thereof. This casts doubt on Malayans claim that the
of several units per Schedules 1 and 3 of the MOA, the Court cannot parties intended interest expense to become part of their capital
determine whether or not such expense should be considered as its contribution, let alone the ARCC.
contribution for purposes of computing the return of capital
investment. Unlike the investment of Malayan which is specifically In view of the foregoing discussion, the Court will no longer delve into
stated under Section 214 of the MOA, but does not include payment of Malayans two other contentions on the issue of interest expense,
interest of the bank loan to finance the project, the investment of ASB namely: (1) that since St. Francis only claimed that such expense cannot
(now St. Francis) is merely described as follows: be included as part of the ARCC as the same is not a direct construction
cost, it cannot now change its theory and argue that there is no
Section 3. Recognition of ASBs Investment. The parties confirm that as substantial evidence to show that Malayan incurred such expense in
of the date hereof, ASB invested in the Project an amount equivalent to completing the project because it is deemed to have admitted the same,
its entitlement to the net saleable area of the Building under Section 4 and allowing St. Francis to do so would amount to a prohibited change
below, including ASBs interest as buyer under the Contract to Sell. of its theory; and (2) that Malayan was able to prove that it incurred
interest expense on loans which were used to finance completion of the
From such vague definition of ASBs investment, the Court cannot rule project.
if St. Francis should also be disallowed from claiming interest expense
as part of its investment, unlike Malayan which is disallowed from II. Scope and total amount of ARCC
including interest expense as part of the ARCC contemplated in the
MOA, because such financial cost is not an actual expenditure necessary According to the CIAC, ARCC refers to actual expenditures made by
to complete the project. Having in mind the rule that the interpretation Malayan to complete the project. What is proper and necessary to
of obscure words or stipulations in a contract shall not favor the party complete the project is the essence of the dispute between the parties.
who caused the obscurity,15 the Court cannot give credence to the As used in the MOA, ARCC should be understood in the traditional
August 1, 2000 telefax of Evelyn Nolasco, St. Francis former Chief "construction" sense rather than in "investment" sense. The dispute is a
Financial Officer (CFO), to Malayans CFO, Gema Cheng, which shows St. construction dispute and not an investment dispute which would have
Francis computation for reimbursement, including the claim of taken the dispute outside the ambit of construction arbitration.
P207,500,000.00 as interest expense. Notably, the cost component/pay items stated in Exhibit "C-2" (MOA
Schedule 9), Exhibit "R-7" (Surequest Report) and Exhibit "R-8" (Davis
Further negating Malayans claim that interest expense should be Langdon Seah Report) contain basic and traditional construction cost,
included in the computation of the ARCC is the restrictive construction and not investment cost which is broader in scope. As to the amount of
industry definition of the term "construction cost" which means the the ARCC, CIAC held that it is P614,593,565.96 as stated in Exhibit "C-
3"17 which was prepared by Malayan itself and submitted to St. Francis. The CA stressed that based on its reading of the MOA in its entirety, the
Exhibit "C-3" listed the expenses incurred as of August 10, 2006 which ARCC clearly means the "investment" incurred as contributed by
was close enough to the project completion date of June 7, 2006, as a Malayan in the completion of the project, and that there being no
basis to determine what items should be disallowed therefrom. ambiguity in the MOA, its literal meaning is controlling. The CA added
that its interpretation is consistent with the rule that when the terms of
Reversing the CIACs ruling, the CA held that actual expenditures should agreement have been reduced into writing, it is considered as
not be limited only to traditional construction cost as the parties containing all the terms agreed upon by the parties and there can be
intention when they executed the MOA was to also include between the parties and their successors-in-interest, no evidence of
expenditures relative to the actual completion of the project. It noted such terms other than the contents of the written agreement.
that the clear intention of the parties that whatever expenditures they
have spent shall be considered as their investment subject to the As to the amount of the ARCC, the CA found that the gross ARCC based
proportionate sharing after determining the actual construction cost, on evidence is P554,583,160.20 [Including 1/11% Input VAT and 2%
can be gleaned from the following provisions of the MOA: Withholding Tax], while the net payment is P552,152,508.70.
According to the CA, St. Francis and Malayan correctly argued that the
Section 2. Investment of Malayan. Subject to the provisions of Section 9 CIAC mainly relied on Exhibit "C-3" which is a mere summary of the
below, Malayan shall invest the amount necessary to complete the expenses or a tabulation of figures incurred by Malayan without any
Project and the following amounts: other supporting documents to prove the contents and authenticity of
the figures stated therein. In determining the ARCC, the CA thus
xxxx reviewed the records and ruled that Exhibit "C-3" and Exhibit "R-
24"18 [Project Cost to Complete as of October 2008 amounting to
P648,266,145.96] should be utilized vis--vis Exhibit "R-48-
Section 3. Recognition of [St. Francis] Investment. The parties confirm series" which contain construction costs and computations supported
that as of the date hereof, [St. Francis] invested in the Project an by receipts, vouchers, checks and other documents that are necessary
amount equivalent to its entitlement to the net saleable area of the to arrive at the final computation of the ARCC. In this regard, St. Francis
Building under Section 4 below, including [St. Francis] interest as agrees with the CA that Exhibit "R-48-series" should be taken into
buyer under the Contract to Sell. account because it contains computations supported by such
documentary evidence, but gravely erred in considering only the
Section 4. Distribution and Disposition of Units (a) As a return of its summaries in such exhibit without actually verifying and counter-
capital investment in the Project, each party shall be entitled to such checking if the amounts indicated in the summaries actually
portion of all the net saleable area of the Building that their respective correspond to the amounts reflected in the supporting documents. St.
contributions to the Project bear to the actual construction cost. As of Francis points out that the ARCC considered as being claimed by
the date of the execution hereof, and on the basis of the total costs Malayan that are actually receipted is only P514,179,217.94 based on
incurred to date in relation to the Remaining Construction Cost (as Exhibit "R-48-series."
defined in Section 9(a) hereof), the parties shall respectively be entitled
to the following (which entitlement shall be conditioned on, and subject Due to the conflicting findings of the CIAC and the CA on the scope,
to, adjustments as provided in sub-paragraph [b] of Section 4 in the meaning and computation of the ARCC, the Court is compelled to
event that the actual remaining construction cost exceeds the review them in light of the evidence on record.
Remaining Construction Cost):
As duly noted by the CA, the controversy between St. Francis and net saleable area in Schedule 4 that corresponds to the excess of
Malayan lies in the interpretation of the term "Actual Remaining the actual remaining cost over the Remaining Construction Cost.
Construction Cost" (ARCC) in relation to the Estimated Remaining
Construction Cost (RCC), in order to determine the proportionate xxx
ownership over the reserved units, if any, as embodied in their
Memorandum of Agreement dated April 30, 2002, the pertinent Section 9. Remaining Construction Cost (a) [St. Francis] represents
provisions of which read: and warrants to Malayan that Malayan can complete the Project at a
cost not exceeding Four Hundred Fifty-Two Million Four Hundred
Section 4. Distribution and Disposition of Units (a) As a return of its Twenty-Four Thousand Eight Hundred Forty-Nine Pesos
capital investment in the Project, each party shall be entitled to such (P452,424,849) (the Remaining Construction Cost) as set forth in [St.
portion of all the net saleable area of the Building that their respective Francis] Construction Budget Report attached hereto and made an
contributions to the Project bear to the actual construction cost. As of integral part hereof as Schedule 9 that:
the date of the execution hereof, and on the basis of the total costs
incurred to date in relation to the Remaining Construction Cost (as xxx
defined in Section 9(a) hereof), the parties shall respectively be entitled
to the following (which entitlement shall be conditioned on, and subject
to, adjustments as provided in sub-paragraph [b] of Section 4 in the (b) Malayan shall pay for any additional costs and expenses that may be
event that the actual remaining construction cost exceeds the incurred in excess of the Remaining Construction Cost. In such event, it
Remaining Construction Cost): shall be entitled to such net saleable area as indicated in Schedule 4
that corresponds to the increase in remaining construction cost. [St.
Francis] shall be entitled to such net saleable area, if any, remaining in
xxx the aforesaid Schedule 4.19

(ii) ASB [now, St. Francis] the following net saleable area: The ultimate purpose of determining the ARCC, as simply stated by
CIAC, is to determine the proportionate or absolute ownership of the
(C) provided that the actual remaining construction costs do not properties over the net saleable area of the building (Reserved Units), as
exceed the Remaining Construction Cost, the net saleable area provided in sub-paragraph (a) of Section 4 of the MOA, by calculating
particularly described in Schedule 4 hereof which shall be delivered to how much was spent by Malayan to complete the project in excess of
[St. Francis] upon completion of the Project and determination of its the estimate (Remaining Construction Cost) made by St. Francis.
actual construction costs. If the actual remaining construction
costs exceed the Remaining Construction Cost, sub-paragraph (b) of After a careful review of the MOA as to the scope and meaning of the
Section 4 shall apply. term "ARCC," the Court sustains the CIAC that such term should be
understood as the actual expenditures necessary to complete the
(b) In the event that the actual remaining construction costs exceed project, which is the traditional "construction" sense rather than the
the Remaining Construction Cost as represented and warranted by [St. "investment" sense. The Court thus reverses the CAs ruling that the
Francis] to Malayan under Section 9(a) hereof, and Malayan pays for parties intention was to also include in the computation of the ARCC
such excess, the pro rata sharing in the net saleable area of the whatever expenditures relative to the actual completion of the project,
Building, as provided in sub-paragraph (a) of this Section 4 shall be as such expenses are considered as their investment subject to the
adjusted accordingly. In such event, Malayan shall be entitled to such proportionate sharing after determining the actual construction cost.
It bears stressing that the intent of the parties in entering into the MOA construction and development of the Project is finished as certified by
is to provide for the terms and conditions of the completion of the the architect of the project. Upon completion of the project, the general
Project and the allocation of the ownership of condominium units in the provision which governs the distribution and disposition of units is the
Project among themselves.20 To recall, Malayan and St. Francis (then first sentence of Section 4(a) of the MOA, to wit: "[a]s a return of its
ASB) entered into the Joint Project Development Agreement (JPDA) capital investment in the Project, each party shall be entitled to such
dated November 9, 1995 to construct a thirty-six (36)-storey portion of all the net saleable area of the Building that their respective
condominium [but originally a fifty (50)-storey-building] whereby the contributions to the Project bear to the actual construction cost." The
parties agreed (a) that Malayan would contribute a parcel of land, and second sentence22 of Section 4(a) provides the specific details on
ASB would defray the construction cost of the project, and (b) that they the pro rata sharing of units to which the parties are entitled based on
would allocate the net saleable area of the project, as return of their the RCC in relation to total costs incurred as of the date of the execution
capital investment. In a Contract to Sell dated November 20, 1996, of the MOA dated April 30, 2002. It also states, however, that
Malayan also agreed to sell the said land to ASB (now St. Francis) for a entitlement to certain units are subject to adjustments in the event that
consideration of P640,847,928.48, but the latter was only able to pay the ARCC exceeds the RCC, and Malayan pays for such excess.
P427,231,952.32. However, ASB was unable to completely perform its
obligations under the JPDA and the Contract to Sell because it Clearly, the parties foresaw that Malayan may incur additional cost and
underwent corporate rehabilitation, and the Securities and Exchange expenses in excess of the Remaining Construction Cost (RCC) of
Commission suspended, among other things, the performance of such P452,424,849.00 which amount St. Francis represented and warranted
obligations. Since ASB had pre-sold a number of condominium units, that Malayan would have to spend to complete the project. Section
and in order to protect the interests of the buyers, to preserve its 9(b)23 of the MOA thus adds that, in such event, Malayan shall be
interest in the project, its goodwill and business reputation, Malayan entitled to such net saleable area as indicated in Schedule 4 that
proposed to complete the project subject to the terms and conditions of corresponds to the increase in remaining construction costs, while St.
the MOA. Francis shall be entitled to such net saleable area, if any, remaining in
the said Schedule 4. As admitted by the parties in the Amended Terms
Under Section 5(a) of the MOA, Malayan undertook to construct, of Reference, the net saleable area included in Schedule 4 ("Reserved
develop and complete the Project based on the general specifications Units") originally covered fifty-three (53) units (which was reduced to
already agreed upon by the parties and set forth in Schedule 6 of the thirty-nine [39] units after reconfiguration) with thirty-eight (38)
MOA, within two (2) years from (i) the date of effectivity of Malayans parking spaces, and the aggregate monetary value of said units is
obligations as provided in Section 21, or (ii) the date of approval of all P175,856,323.05.
financing/loan facilities from any financial or banking institution to
fully finance the obligations of Malayan under the MOA, whichever of In determining the entitlement of the parties to the reserved units in
said dates shall come later; or within such extended period as may be Schedule 4, Malayan insists that the ARCC should include all its capital
agreed upon by the parties. Section 21 of the MOA provides that contributions to complete the project, including financial costs which
Malayan shall be bound by and perform its obligations, including the are not directly related tothe construction of the building. It argues that
completion of the Project, only upon (i) fulfillment by St. Francis of all the MOA is replete with provisions recognizing the parties intent to
its obligations under Section 6, items (a), (b), (c) and (d),21 and (ii) include in the ARCC their respective capital contributions or
approval by the Insurance Commission of the MOA. investment.

Section 5(a) of the MOA also states that that the project shall be Malayans argument fails to persuade.
deemed complete, and the obligation of Malayan fulfilled, if the
The term ARCC should only be construed in light of its plain meaning included or excluded in the ARCC for reasons that will be explained
which is the actual expenditures necessary to complete the project, and below. Hence, the CAs own computation of the ARCC based on
it is not equivalent to the term "investment" under the MOA. Exhibit "R-48-series" in the total amount of P554,583.160.20 (including
1/11% Input VAT and 2% withholding tax) should be modified in order
As stated in the MOA, the investment of Malayan is composed of (1) the to arrive at the net ARCC of P505,391,573.63, thus:
amount necessary to complete the project, and (2) the following
amounts: (a) P65,804,381, representing Malayans payment on behalf Construction Cost as per receipts (Exhibit "R-48-series"27) (with
of ASB (now St. Francis) of the principal amount of the loan obtained by 1/11% Input VAT and 2% withholding tax) P554,583,160.20
ASB from the RCBC to finance the project; and (b) P38,176,725,
representing Malayans payment on behalf of ASB of the outstanding Total Inclusion: P8,282,974.82
obligations to project contractors as of the signing of the MOA.24 On the
other hand, the investment of St. Francis is broadly defined as the ASBs Award to Total Ventures, Inc.
invested amount equivalent to its entitlement to the net saleable area of
the Building under Section 4 of the MOA, including ASBs interest as
buyer under the Contract to Sell.25 Hence, the Court holds that the (Prolongation costs and extended Overhead) + 8,282,974.82
ARCC, which pertains only to the amount necessary to complete the Total ARCC:
project, can be considered as part of the capital investment, but they P554,583,160.20+8,282,974.82=P562,866,135.02
are not synonymous.
(Construction Costs as per receipts + Inclusion)
Likewise negating Malayans argument that all its contribution to
complete the project should be included in the ARCC is the restrictive Total Deductions:P41,705,696.66
construction industry definition of "construction cost", to wit: the cost
of all construction portions of the project, generally based upon the Interest expense paid by Malayan to RCBC P39,348,659.88
sum of the construction contract(s) and other direct construction costs; Change orders not due to Reconfiguration 971,796.29
it does not include the compensation paid to the architect and
consultants, the cost of the land, right-of-way, or other costs which are Contingencies 631,154.39
defined in the contract documents as being the responsibility of the Interior Design Works + 754,086.10
owner.26 P41,705,696.66

As to the computation of the ARCC, the Court agrees with the CA that Total Exclusions:P15,768,864.73
the CIAC erred in relying mainly on Exhibit "C-3," which is a mere
summary or tabulation of the cost to complete the project as of August
(Unsubstantiated Costs)
10, 2006, and that Exhibit "R-24" (a 26-page Cost to Complete as of
October 2008) and Exhibit "R-48-series" (consisting of about 2,230
pages construction costs computation, receipts, vouchers, checks and Item 1.028 P 9,297,947.22
other documents) should also be considered in determining the ARCC. Items 5.3 and 5.429 530,563.65
After a careful review of the records, the Court finds partial merit in the
Items 5.3 and 5.4 725,877.62
claim of St. Francis that certain items in the computations are
unsubstantiated by evidence, while the other costs should either be Item 5.7.130 50,710.61
Item 6.2.2531 194,171.00 separate item and was, in fact, claimed as an asset under the heading
Item 6.1132 3,499.64 "Other Assets."
Item 6.11 1,360.00
St. Francis further points out that Malayans counsel admitted that
Item 6.12.333 2,397,047.8934 input VAT is not part of cost when he stated that VAT and interest
Item F335 368,397.52 expense are actually financial cost and part of its capital contribution in
Item F3 448,534.59 the construction, but, strictly speaking, not directly related
construction cost. St. Francis claims that even from an accounting
Item F3 634,232.26
standpoint, input tax is not entered into the books as part of cost. While
Professional Fees C& D36 427,500.00 contract prices for contractors or suppliers are VAT inclusive, it does
Professional Fees N37 + 79,022.73 not mean that input VAT is considered part of cost; input VAT is treated
as account in a different account, either under "Other assets" or "Input
P15,768,864.73 Tax", which is an asset account. Besides, the input VAT claimed by
Malayan as part of its construction cost in the usual course of business
(Total Deductions) P41,705,696.66
as a VAT-able entity is offset or credited against output VAT to
(Total Exclusions) +15,768,864.73 determine the net VAT due or payable to the government. Since
Malayan also has output VAT from its sales of condo units in the project
P57,474,561.39 and from sales of insurance policies, it should be able to credit such
input VAT and not charge it as part of the construction cost.
Total ARCC - Total Deductions & Exclusions = Net
ARCC: P505,391,573.63 St. Francis finally notes that Malayan admitted that it can apply for
refund or issuance of tax credit for excess input tax, and will thus
P562,866,135.02 - P57,474,561.39 = P 505,391,573.63 benefit twice from charging input VAT as part of the construction cost.
Since input VAT had already been claimed by Malayan, and its audited
financial statements show the offsetting of input VAT against output
III. Input VAT VAT, then justice and equity dictate that it should not be allowed to
claim it as part of the ARCC.
St. Francis contends that Input VAT should not be treated as part of
construction cost, because it is not part of the costs of goods and The Court finds no compelling reason to disturb the consistent findings
services purchased or engaged under Section 11038 of the National of the CA and the CIAC that Input VAT should be allowed to remain in
Internal Revenue Code (NIRC). According to St. Francis, VAT Ruling No. the ARCC. As aptly pointed out by the CA and the CIAC, ARCC refers to
053-94, February 9, 1994, states that VAT paid by a VAT-registered the actual expenditures made by Malayan to complete the project. The
person on his purchases (or input tax) is an asset account in the Balance Court thus agrees with Malayan that in determining whether input VAT
Sheet and not to be treated as an expense, unless he is exempt from should be included as ARCC, the issue is not the technical classification
VAT in which case the VAT paid would form part of the cost to acquire of taxes under accounting rules, but whether such tax was incurred and
what was purchased. In fact, per Malayans own documentary evidence, paid as part of the construction cost. Given that input VAT is, strictly
cash vouchers in Exhibit"R-48-series," input VAT is indicated as an speaking, a financial cost and not a direct construction cost, it cannot be
account separate from the actual cost of services or materials. Also, in denied that Malayan had to pay input VAT as part of the contract price
Malayans audited financial statements, input VAT is treated as a of goods and properties purchased, and services procured in order to
complete the project. Moreover, that the burden of such tax was shifted the second receipt, the description of the contract for the CARI appears
to Malayan by its suppliers and contractors is evident from the to be a different project. Considering that the assured in the receipts is
photocopies of cash vouchers and official receipts on record,39 which not just Malayan but jointly with LANDEV (project manager), St. Francis
separately indicated the VAT component in accordance with Section adds that Malayan must prove that it actually paid for this expense.
113(B)40 of the Tax Code.41
It bears stressing that both the CIAC and the CA agreed that the CARI
Anent the claim that it would be unjust and inequitable if Malayan should be allowed as part of the ARCC, but differed as to the amount.
would be allowed to include its input VAT in the ARCC, as well as to Due to St. Francis admission that it would allow inclusion of
offset such tax against its output tax, the Court finds that such P1,000,000.00, and considering that no basis has been suggested on
coincidence does not result in unjust enrichment at the expense of St. how the said amount was arrived at, the CIAC decided to split the
Francis. Unjust enrichment claims do not lie simply because one party amount contested (P2,814,678.80, excluding premium for renewals,
benefits from the efforts or obligations of others, but instead it must be per Malayan) into equal shares, and allowed the CARI in the amount of
shown that a party was unjustly enriched in the sense that the term P1,407,336.40 as part of the ARCC. On the other hand, the CA allowed
unjustly could mean illegally or unlawfully.42 In offsetting its input VAT CARI in the amount of P2,168,035.66 as part of ARCC, after reviewing
against output VAT, Malayan is merely availing of the benefits of the tax the official receipts44 issued by Tokio Marine Insurance Co., and finding
credit provisions of the law, and it cannot be said to have benefitted at that the total amount of the CARI should be P4,336,071.32 which
the expense or to the damage of St. Francis. After all, Malayan is should be split between Malayan and St. Francis.
justified in including in the ARCC the input VAT it had paid as part of
the contract price of the goods, properties and services it had procured The Court holds that CARI in the amount of P4,361,291.34 is supported
to complete the project. by official receipts;45 hence, such amount should be allowed to remain
in the ARCC. Although the official receipts of the CARI appear to have
At any rate, St. Francis would also be entitled to avail of the same tax been issued in the name of Malayan and/or LANDEV, the minutes of the
credit provisions upon the eventual sale of its proportionate share of December 20, 2002 Bids and Awards Committee Meeting, of which St.
the reserved units allocated and transferred to it by Malayan. It bears Francis President Luke Roxas was a member, proves that it was
emphasis that the allocation of and transfer of such units to St. Francis unanimously agreed upon that the CARI would be secured directly by
is subject to output VAT which Malayan could offset against its input the owner, Malayan. The official receipts and the said minutes prove
VAT. In turn, St. Francis would incur input VAT which it may later offset that the premium of the policy, as well as the renewals thereof, were
against its output VAT upon the sale of the said units. This is in shouldered by Malayan as the owner of the project. Against the said
accordance with the tax credit method of computing the VAT of a substantial evidence of Malayan, the CA and the CIAC have no basis in
taxpayer whereby the input tax shifted by the seller to the buyer is ruling why the CARI should be split between Malayan and St. Francis.
credited against the buyers output taxes when it in turn sells the As to the conflict between the CARI premium payments shown in
taxable goods, properties or services.43 Exhibit "C-3" (Cost to Complete as of August 10, 2006) in the total
amount of P4,006,634.85 and Exhibit "R-48-M-series" (Item 5.0 Project
IV. Comprehensive All Risk Insurance (CARI) Insurance, Tokio Marine Malayan Insurance Co. Inc.) in the total
amount of P4,361,291.34, the latter should prevail as it is supported by
St. Francis claims that the CARI should be disallowed from being part of official receipts.46
the ARCC because there is no proof of expense on the part of Malayan,
and only official receipts were presented. However, the first official V. Allocation of Reserved Units
receipt in the amount of P2,814,672.81 is not even readable, while in
St. Francis asserts that the correct ARCC supported by receipts is only P122,889,598.42/P175,856,323.05 = .6988 or 70% - share of St.
P514,179,217.94,47and after making all the necessary deductions, the Francis.
excess ARCC over the warranted RCC [P452,424,849.00] would only be
around P16,446,014.66, thus entitling it to the value of the reserved Prolongation Costs and Extended Overhead
units of around P159,410,310.39, as well as the income therefrom. On
the other hand, Malayan insists that St. Francis would no longer be The CIAC held that Prolongation Costs and Extended Overhead in the
entitled to any reserved units,and it would still be liable for amount of P6,000,000.00 should be excluded as part of the ARCC
P19,038,339.91, as the ARCC and the RCC exceeded the aggregate value because it would be unfair and unjust for Malayan to pass on its liability
of the reserved and the total aggregate value of the reserved units by to St. Francis after having been found responsible for the delay. The
such amount. CIAC pointed out that the resolution of this issue hinges upon whose
fault the delay in the construction that gave rise to prolongation costs
The CIAC held that the ARCC based on Exhibit "C-3" is P614,593,565.96, may be attributed to, and this was resolved in CIAC Case No 27-2007
and that after deducting the total disallowances of P52,864,385.00, as entitled "Total Ventures and Project, Inc. vs. Malayan Insurance
well as the amount of the RCC, the excess ARCC will be Company, Inc." where the arbitral tribunal awarded in favor of claimant
P109,304,331.96 which is equivalent to Malayans 62.2% share in the TVI the sum of P7,743,278.89 to compensate for the delay in the
total aggregate value of the reserved units (P175,856,325.05). completion of construction which has been caused essentially by
Meanwhile, the remaining 37.8% is the proportionate share of St. Malayan.
Francis in the said units.
On the contrary, the CA held that it is but proper to include in the ARCC
Modifying the ruling of the CIAC, the CA ruled that based on Exhibit "C- the amount of P21,948,852.39 which Malayan had paid to Total
3", "Exhibit R-24" and Exhibit "R-48-series," the total ARCC is Ventures, Inc. (TVI) for the settlement in the CIAC Case No. 27-2007.
P615,880,672.47. After excluding the deductions in the total amount of
P15,135,166.51 and the amount of the RCC, the excess ARCC will be St. Francis points out that without consideration of its arguments and
P148,320,656.96 which is equal to Malayans 84% share in the total contrary to CIACs finding, the CA held that Malayan had paid TVI
aggregate value of the reserved units. The remaining 16% is the P21,948,852.39 which should be included in the ARCC. St. Francis
proportionate share of St. Francis in the said units. states that, assuming arguendo, that such settlement in the arbitration
case can be considered part of the ARCC, the entire amount thereof
After a circumspect review of the records, the Court finds that cannot be included because the combined total amount of the award of
the 30% of the reserved units should be allocated to Malayan, prolongation costs and extended overhead (P7,743,278.89), and the
while 70% should be allocated to St. Francis. Below is the computation interest (P1,430,127.50) is only (P9,173,405.94). It adds that it is very
of the parties proportionate share in the said units: clear in the decision of the arbitral tribunal that the causes for the delay
of TVI that warranted the grant of overhead expenses are actually
P505,391,573.63 [Net ARCC] - P452,424,849.00 [RCC] = attributable to Malayan, to wit:
P52,966,724.63 [Excess ARCC]
Based on the foregoing documentary evidence and the testimony of the
P52,966,724.63 [Excess ARCC]/P175,856,323.05 [Total Aggregate witnesses, delays in the project implementation was mainly attributed
Value of Reserved Units] = .3011 or 30% - share of Malayan to the reconfiguration of the room layout of the building at Discovery
side and delay in the award by MICO [Malayan] of the subcontract
packages for other trade disciplines plus, the delayed delivery of A. Whether St. Francis had never disputed and therefore
material which had a domino effect on the work of the succeeding admitted that Malayan had incurred the ARCC.
packages, and eventually to the overall project completion date which
had to be extended to August 31, 2005.48 B. Whether the CA erred in allowing St. Francis to
belatedly change its theory in its Draft Decision and in its
The CA grossly erred in ruling that the full amount of P21,948,852.39 Appeal.
paid by Malayan to TVI should be included in the ARCC. A careful
review of the decision of the arbitral tribunal in CIAC Case No. 27-2007 C. Whether the CA erred in disregarding the
shows that such full amount consists of net amount due uncontroverted testimonial evidence, and focusing solely
(P20,518,725.94) to TVI after offsetting its various claims against the on documentary evidence.
counterclaims of Malayan, plus the accrued interest of
P1,430,127.05.49Based on the said decision and the amount which St. According to Malayan, the CA overlooked the fact that St. Francis
Francis itself has conceded it may be held liable for, the Court holds objected only to the perceived impropriety of including certain costs in
that the prolongation costs and extended overhead for the period of the ARCC. That Malayan incurred these costs was never in issue during
January 2005 to August 2005 (P6,313,846.43) and September 1, 2005 the arbitral proceedings. In view of the rule that all facts not in issue are
to August 31, 2005 (P1,429,432.46) in the total amount admitted, and that all facts judicially admitted do not require proof,
P7,743,278.89,50 as well as the accrued interest in the amount of Malayan claims that it should not bear the burden to prove that it had
P539,695.93,51 or a total amount of P8,282,974.82, should be included actually incurred its ARCC.
as part of the ARCC.
Malayan also notes that St. Francis CIAC complaint contained no
The Court agrees with Malayan that the cause of the delay in the allegation that Malayan had not actually incurred the costs in its ARCC,
completion of TVIs construction works was the reconfiguration of the nor was there any claim that specific costs items in the ARCC lacked
room layout of the building along the side facing Discovery Suites hotel. evidentiary basis, or were otherwise fictitious or fabricated. Malayan
Such delay was, in turn, caused by St. Francis deviation from the argues that if its alleged failure to substantiate the ARCC was enough
original April 12, 1996 floor plans for the 9th to 31st floors of the basis to question costs included therein, it follows that St. Francis
project, which resulted in units that were more typical of a high- would already have disputed in its complaint the entire amount of the
density, low-cost condominium project. Indeed, Malayan had to ARCC. Yet, St. Francis only chose to object to selected items in the ARCC,
reconfigure the said layout of several units that St. Francis had and not because of the alleged lack of substantiation.
constructed as they were smaller and narrower than those provided in
the original floor plans, and in order to meet St. Francis commitment to
the buyers of pre-sold units to create a prestigious building and Malayan adds that from the time St. Francis filed its complaint, up to the
collaborative masterpiece that only the best in interior design, conclusion of trial, it had the same theory, i.e., although Malayan had
landscape planning and architecture can truly offer, as well as to avoid indeed spent for its ARCC, some costs items ought to be excluded as
possible liability under Section 1952 of the Subdivision and they could not be considered part of the ARCC. It was only belatedly in
Condominium Buyers Protective Decree (Presidential Decree No. 957). its Draft Decision and its Petition before the CA that St. Francis argued
for the first time that new cost items should also be deducted from the
ARCC because they were allegedly unsubstantiated or not fully
The Court will now discuss jointly the first three interrelated issues supported by official receipts. In light of the rule that a party cannot
raised by Malayan. change his theory on appeal when a party adopts a certain theory in the
court below, Malayan faults the CA for excluding new cost items from basis as well as evidence that claimant incurred these costs, much
the ARCC due to lack of substantiation. Besides, Malayan claims that its less, if these costs conform with the actual construction cost as the
entire ARCC as of February 29, 2009 was expressly affirmed by its same is understood under the MOA. xxx53
witnesses who are competent to testify due to their involvement in the
preparation and monitoring of the projects budget. For another, one of the admitted facts in the Amended Terms of
Reference states that "[d]espite the completion of the Project and the
Stating that it did not have the burden of proving that it incurred the turnover of the units to [St. Francis], [Malayan], and other buyers of
costs in its ARCC because this was never in issue, Malayan concludes units, the issue of actual cost of construction has not been resolved to
that the CA should have held St. Francis to its original theory that the mutual satisfaction of the parties."54 Not to mention, one of the
Malayan had actually incurred all the items in its ARCC of issues raised before the CIAC is "[w]hat is the actual remaining
P647,319,513.96, instead of examining each item included therein and construction cost to complete the Project spent by [Malayan] as of
accepting only P615,880,672.47 as supported by documentary today in excess of [St. Francis] estimate RCC?"55 Clearly, there is no
evidence. Finally, Malayan insists that there can be no dispute that it merit in the claim that St. Francis admitted that Malayan had incurred
incurred the ARCC of P647,319,513.96 based on the unrebutted the ARCC of P647,319,513.96 as of October 2008. It can be gathered
testimony of its witnesses and the voluminous documents it introduced from the complaint that, as early as August 2006 when the ARCC was
at trial. just P614,593,565.96, St. Francis already disputed such amountfor lack
of independent proof or evidence that Malayan incurred these costs
Malayans contentions are misplaced.
Anent Malayans claim that St. Francis argued belatedly in its Draft
Contrary to the claim that St. Francis admitted that Malayan had Decision and its petition before the CA that new cost items should also
incurred the ARCC of P647,319,513.96, the allegations in St. Francis be deducted from the ARCC because they were allegedly
complaint and the Amended Terms of Reference would show that the unsubstantiated or not fully supported by official receipts, suffice it to
substantiation of the cost items included in the ARCC and the exact state that whether such cost items should be excluded from the ARCC is
amount thereof arethe core issues of the construction arbitration impliedly included in the issue of "[w]hat is the actual remaining
before the CIAC. construction cost to complete the Project spent by [Malayan] as of
today in excess of [St. Francis] estimate RCC?"56
For one, the contention that St. Francis complaint contained no
allegation that Malayan had not actually incurred the costs in its ARCC, Moreover, in an action arising out of cost overruns on a construction
nor was there any claim that specific costs items in the ARCC lacked project, the builder who has exclusive control of the project and is in a
evidentiary basis, is belied by the following allegations in same better position to know what other factors, if any, caused the increases,
complaint: has the burden of segregating the overruns attributable to its own
conduct from overruns due to other causes.57 As the co-owner and
2.9 Sometime in August of 2006, [Malayan] presented a cost to developer who assumed the general supervision, management and
complete construction of the Project in the amount of SIX HUNDRED control over the project, and the one in possession of all the checks,
FOURTEEN MILLION FIVE HUNDRED NINETY THREE THOUSAND FIVE vouchers, official receipts and other relevant documents, Malayan bears
HUNDRED SIXTY FIVE PESOS and 96/100 (P614,593,565.96). Said the burden of proving that it incurred ARCC in excess of the RCC and
cost to complete however was a mere tabulation with a listing of the total aggregate value of the reserved units, in which case St. Francis
items and appurtenant costs.There was no independent proof or would no longer be entitled to a proportionate share in the reserved
units pursuant to the MOA.
In view of the foregoing discussion, the Court finds no merit in excess of the costs of additive change orders.59 In arriving at such
Malayans contentions (1) that it did not have the burden of proving computation, the CIAC went over the disputed change orders due to
that it incurred the costs in its ARCC because this was never in issue; reconfiguration, and proceeded to calculate whether the cost of the
and (2) that there can be no dispute that it had incurred the ARCC of additive works exceeded the savings realized from the deductive
P647,319,513.96 based on the unrebutted testimony of its witnesses works. Notably, no similar effort was exerted by the CA in arriving at its
and the voluminous documents it introduced at trial. ruling. Without stating any reason, the CA reversed the CIAC ruling that
net savings were generated on account of change orders due to
D. Erroneous Cost Exclusions from the ARCC reconfiguration,

D.1. Change Orders due to Reconfiguration D.2. Change Order not due to Reconfiguration

The CIAC held that costs of reconfiguration should be allowed to With respect to change orders not due to reconfiguration amounting to
remain as part of the ARCC on account of the greater savings generated. P971,796.29, the CIAC held that such costs should be excluded from the
It found that Malayan has sufficiently established that the computation of the ARCC because they were clearly not within the
reconfiguration did not result in additional costs, and net savings were scope of the original work covered by the MOA, but were plainly
realized. Since St. Francis only concern was to minimize costs and additive works ordered by Malayan to improve or enhance the project.
maximize savings, there is no longer any basis to object to the It also found no legal or equitable reason to allow Malayan to pass on
reconfiguration and the change order that were approved as a results the costs of such unnecessary improvements or enhancementsto St.
thereof. Francis.

In contrast, the CA ruled that the CIAC erred in allowing the increased The CA deemed it unnecessary to disturb the CIACs findings on the
cost of P7,434,129.85 to be included in the ARCC because it is change of orders not due to reconfiguration, as the latter had
immaterial whether there were net savings generated from the extensively discussed the issue. According to the CA, the CIAC correctly
reconfiguration, and the fact remains that there was an increase in the ruled that the change orders not due to reconfiguration cannot be
budgeted construction cost, which Malayan alone should bear. considered as part of the ARCC as these were not within the scope of
the work agreed upon by the parties in the MOA. It also noted that it is
Finding substantial evidence on record to support the CIAC ruling, the clear from Section 5 of the MOA that Malayan shall undertake, among
Court reverses the CA ruling and upholds the CIAC that the increased other things, to construct, develop and complete the Project based on
costs of P7,434,129.52 should be included in the ARCC.The Court the general specifications already agreed upon by the parties and as set
sustains the CIACs observation that although such reconfiguration was forth in the Schedule 6 of the MOA, with full powers to enter into
not really necessary for the completion of the project and was agreement with contractors, subcontractors, and suppliers for the
undertaken only to make the units more saleable, St. Francis had completion of the various phases of work. It concluded that when
consented thereto on the condition that it would result in savings Malayan undertook additional works, improvements or enhancements
rather than additional costs.58 No persuasive reason was shown to not within the specifications agreed upon, it presupposes that it shall
disturb the CIAC finding that despite the increased costs of bear the costs thereof.
P7,434,129.52 as claimed by St. Francis, and even including the
consultants fees in the aggregate amount of P3,081,725.00, the savings Since the findings of the CIAC and the CA on this issue are consistent,
amounting to P14,096,239.07 due to reconfiguration, would still be in the Court perceives no cogent reason to overturn such findings which
are supported by substantial evidence. Besides, the Court takes issue
with Malayans claim that the CA gravely erred in rigidly applying the cost was a force majeure (government log ban) for which no one can be
specifications in Schedule 6 of the MOA, considering that they were blamed, it is but fair that both parties will equally share the increased
"general" in character and "for reference" purposes only. It is cost.
noteworthy that Schedule 660 not only provides for the Schedule of
Finishes and Materials of ASB Malayan Tower as of 26 October 2000, The CA ruled that the CIAC did not err in dividing the increased cost
covering Exterior Works, Interior Works, Elevators, Intercom, Fire between the parties. It stressed that the dispute pertains to the
Alarm System, Standby Generator Set, Lightning Protection and Pumps, proportionate entitlement of the parties to the reserved units after
among other things,but also includes the project floor plans from determining the actual construction cost. Thus, both parties should
Basement 2 to 6, and levels 4, 5, 7 to 12, 14 to 18, 20, 22 to 31, 33 to 35, share in the reserved units, as it is but fair that the increased cost
penthouse and upper penthouse. When a building contract refers to the should also be equally divided between them, and half of the increased
plans and specifications and so makes them a part of itself, the contract amount should be included in the computation of the ARCC.
is to be construed as to its terms and scope together with the plans and
specifications.61 When the plans and specifications are by express Although the findings of the CA and the CIAC on this issue are
terms made part of the contract, the terms of the plans and consistent, the Court finds their reasoning contrary to the MOA. The
specifications will control with the same force as if they were physically construction cost increase due to the change from Narra parquet to
incorporated in the very contract itself.62 Malayan cannot, therefore, Kendall laminated flooring is undisputedly due to the government
brush aside Schedule 6 as "general" and "for reference only" matters in logging ban which is a force majeure. However, the equal sharing of
the interpretation of the MOA. such cost increase is contrary tothe MOA which provides for the
proportionate entitlement of the parties to the reserved units,
As to the costs incurred due to the supposed reasonable deviations depending on the excess ARCC over the RCC and the total aggregate
from specifications in the exercise of its sound discretion as the value of the reserved units. In addition, such increased cost due to force
developer, Malayan would do well to bear in mind that if the terms of a majeure falls under the category of "Contingencies" under Schedule 9 of
contract are clear and leave no doubt upon the intention of the the MOA, which term is defined as an amount of money, included in the
contracting parties, the literal meaning of its stipulations shall budget for building construction, that is uncommitted for any purpose,
control.63 Under Section 5 of the MOA, Malayan undertook to construct, intended to cover the cost of unforeseen factors related to the
develop and complete the project based on the general specifications construction which are not specifically addressed in the budget.64 The
already agreed upon by the parties and set forth in Schedule 6 thereof. Court therefore holds that the entire increased cost of P4,982,798.44
As duly pointed out by the CIAC, since the parties to the MOA had due to the unforeseen necessity of change in flooring materials, should
agreed on the specifications that will control the construction and be included in the computation of the ARCC.
completion of the project, anything that alters or adds to these
specifications which adds to the costs, should not be part of the ARCC. D.4. Half of Costs for CARI

D.3. Half of Costs for Narra Parquet Works As discussed above, the CARI in the amount of P4,361,291.3465 is
supported by official receipts; hence, such amount should be allowed to
The CIAC allowed only half of the increased flooring costs remain in the ARCC. Although the official receipts of the CARI appear to
[P4,982,798.44] in the amount of P2,491,399.22, plus the original have been issued in the name of Malayan and/or LANDEV, the minutes
budgeted expense for this item in the amount of P12,770,000.00, or a of the December 20, 2002 Bids and Awards Committee Meeting, of
total amount of P15,261,399.22, as part of the ARCC. According to the which St. Francis President Luke Roxas was a member, proves that it
CIAC, since the cause of change in flooring material and the increased was unanimously agreed upon that the CARI would be secured directly
by the owner, Malayan. The official receipts and the said minutes prove P1,059,217.73. In sum, it allowed only P2,054,563.73 or half of the total
that the premium of the policy, as well as the renewals thereof, were cost increase (P4,109,127.46) of such works to be included in the ARCC
shouldered by Malayan as the owner of the project. Against the said
substantial evidence of Malayan, the CA and CIAC have no basis in Upon review of the records under Exhibit "R-48-series," the CA found
ruling why the CARI should be split equally between Malayan and St. that the official receipts show that the total payment due was
Francis. P12,642,152.52. It agreed with the CIAC that the increased cost for this
item should be divided equally between the parties, but reduced the
D.5. Half of Costs for Interior Design Works amount to P1,508,172.2166 (or P754,086.10 each), instead of
P3,049,909.73. The CA did not also disturb the CIACs ruling on the
In resolving this issue, the CIAC noted that it is crucial to determine disallowance of one-half of the cost of gym equipment and the underlay
whether the disputed amount was spent to improve the original design of plywood, and rubber pads. Having noted a discrepancy in the total
or to comply with St. Francis commitments to the buyers. According to amount of P962,250.00 stated in Exhibit "C-3" [Cost to Complete as of
the CIAC, force majeure (government log ban) also justified the change 10 August 2006], the adjusted contract price of P987,250.00, and the
of flooring materials from wood parquet to homogenous tiles and official receipts showing the total payment of P978,275.01, the CA
marble flooring. However, the difficulty in resolving this issue is that determined that the share of each of the parties should be P493,625.00.
the increased cost is not only because of the change of flooring
materials, but also due to the change of specifications and the inclusion Malayan claims that no explanation was given why the costs for interior
of gym equipment. Thus, it is impossible to separate the increased cost design works had to be divided equally between the parties. In any
arising from flooring change and those from causes other than gym event, the said works were awarded in accordance with the MOA and
equipment which is worth P962,250.00 and the underlay of plywood St. Francis original marketing representations to the buyers of the pre-
and rubber pads worth P96,967.73. sold units, and they were proper and necessary for the completion of
the project. As regards the costs incurred for the gym equipment and
The CIAC noted that the budgeted amount for this item of the underlay of plywood and rubber pads, they should be included in
P5,600,000.00 made by St. Francis was increased to P9,000,000.00 in full in the ARCC because: (1) Section 6 of the MOA provides that the
Malayans budget, and that the difference of P3,400,000.00 reflects the project must have a "Gym/Lounge/Childrens Play Area"; (2) the
increase from unspecified causes such as supervening price increase. It general specifications of the project lists as one of the amenities a gym
added that both parties agreed on the increase due to cost of glass with equipment; and (3) St. Francis included such amenities in the
doors, hardware and plumbing fixtures amounting to P2,100,415.00. It marketing brochures and fliers it gave to buyers of the pre-sold units.
was convinced that what is being contested by St. Francis is the
increase in the actual cost (P14,150,324.73) vis--vis the Effective The Court agrees with the CA and the CIAC rulings that the costs for
Budget for Interior Design Works of P11,100,415.00 or a net increase of interior design works should be included in the computation of the
P3,049,909.73. ARCC, and that what is being contested is whether the net increase of
P3,049,909.73 from the original budget of P11,100,415.00. As correctly
In view of the above stated difficulty in resolving this issue, the CIAC found by the CA based on the official receipts, the net increase should
held that the total increase of P3,049,909.73 as cost of interior design only be P1,508,172.21. The Court also sustains the CA that such
works should be equally shared by both parties (P1,524,954.86 each), increase should be equally divided between the parties (P754,086.10
as well as the cost of the gym equipment (P962,250.00) and the each) due to the impossibility of separating the increased cost arising
underlay of plywood and rubber pads (P96,967.73), both amounting to from flooring change and those from causes (change of specifications)
other than gym equipment and the underlay of plywood and rubber Malayan claims that the incident which led to the payment of
pads. contingency costs was construction-related because a case was filed
against it as a result of the incident and that a temporary restraining
However, there being no valid reason to extend such equal sharing of order (TRO) was issued enjoining further construction works; hence,
costs with respect to the gym items, the Court reverses the CA and the the engagement of lawyers was necessary to ensure the immediate
CIAC in ruling that costs of the gym equipment (P962,250.00) and the resumption of the construction project.
underlay of plywood and rubber (P96,967.73) amounting to
P1,059,217.73 should be equally shared by the parties. The Court, thus, The Court sustains the CA in ruling that the contingency costs in the
holds that the full amount thereof should be included in the amount of P631,154.39 should not be included in the computation of
computation of the ARCC. the ARCC. As duly noted by the CIAC and the CA, legal fees cannot be
considered as part of the ARCC, as they are not directly related to the
D.6. Contingency Costs completion of the project. Despite the allegation that a TRO was issued,
no proof of such order was presented by Malayan. Hence, such costs
The CIAC disallowed the amount of P2,000,000.00 in contingency costs should not be included as part of the ARCC, but should be charged
to be included in the ARCC as they are not directly related to the against the party responsible for the incident, or Malayan as the one
completion of the project.1wphi1 The CIAC noted that what was responsible for the general supervision, management, control over the
included in the ARCC is the amount of P631,154.39 as payment for project.
professional services and various expenses connected with the claim
for damages to the car that was hit by falling construction debris, but D.7. Costs Incurred/Paid after June 2006
Malayan included the amount of P2,000,000.00 in the ARCC. It added
that Malayan, being insured under the CARI, should assert its claim The CIAC found it is unnecessary to resolve the issue: "What is the
against the insurance company. If Malayan failed to do so, or if it was actual remaining construction cost to complete the Project spend by
able to recover less than what it had claimed, it would be unfair to pass [Malayan] as of today [20 January 2009] in excess of St. Francis
on (to St. Francis) the amount it failed to claim by adding it as part of estimated RCC?" Instead, it resolved the same issue based on Exhibit "C-
the ARCC. 3" which is the ARCC amounting to P614,593,565.96 as of August 10,
2006. Noting that Exhibit "C-3" was prepared by Malayan itself and
The CA upheld the CIACs ruling that contingency costs in the amount of submitted to St. Francis, and was close enough to June 7, 2006 when
P631,154.39 should not be passed on to St. Francis, considering that the project was completed, the CIAC used such evidence as the basis
what was paid as damages and expenses was a consequence of an upon which disallowances were to be made, in order to arrive at the
incident that occurred when a falling debris hit the Volvo car owned by ARCC of P561,729,180.96.
Celestra. The CA noted that Malayan should assert its claim against the
insurer to recover whatever damages it incurred in the course of the The CA agreed with the CIAC that it is important to determine when the
construction project. It added that legal fees paid to lawyers who project was completed, as costs incurred after the cut-off date should
defended Malayan against the claim of one Tan-Yee, cannot be no longer be included in the computation of the ARCC, and that the
considered actual construction cost, as no evidence was submitted incontrovertible proof that the project was completed on June 7, 2006
relative thereto. is the Certificate of Occupancy67 submitted by C.E. Manzanero, the duly-
licensed architect of Malayan.
The Court finds no compelling reason to disturb the CA and the CIAC The CA agreed with the CIACs ruling but modified the proportionate
rulings that are consistent with Section 5 of the MOA which expressly sharing of the reserved units, thus: 84% for Malayan and 16% for St.
states that the project "shall be deemed complete, and the obligation of Francis. The CA explained that the income realized from rentals and
Malayan fulfilled, if the construction and development of Project is sales of reserved units from June 7, 2006 until the finality of this case
finished as certified by the architect of the Project." Indeed, costs and shall be considered as having been received by Malayan; thus, it must
expenses incurred after completion of the project cannot be considered be subject to proper accounting in order to arrive at the proper sharing
as part of the ARCC. in accordance with the general principles of equity, and pursuant to the
said proportionate sharing ratio.
E. Entitlement to Reserved Units
Malayan contends that as the owner of the project, it is entitled to all of
As discussed and computed above, the Court holds that 30% of the the civil fruits, including the rents from the lease of the reserved units.
reserved units should be allocated to Malayan, while 70% should be With respect to the accruing fruits, Malayan invokes Article 118770 of
allocated to St. Francis. the New Civil Code, and claims that it is entitled to appropriate all the
fruits and interests realized from the reserved units prior to the
F. Income from Reserved Units happening of two (2) suspensive conditions, i.e., the completion of the
project and the determination of the ARCC. Malayan adds that it is
iniquitous to award St. Francis a share in the income from the reserved
The CIAC held that income realized from rental of the reserved units units without making it share in the expenses and upkeep thereof.
during the period from June 7, 2006 and the present date, should be
determined as having been received by Malayan in trust for such party
that would be determined to be the owner/s thereof. Considering its The Court finds that Malayans obligation to give the reserved units is
determination of the excess ARCC over the RCC, the CIAC stated that the unilateral because it was subject to 2 suspensive conditions, i.e., the
said income should be proportionately shared as follows: 37.8% for St. completion of the project and the determination of the ARCC, the
Francis and 62.2% for Malayan. According to the CIAC, based on happening of which are entirely dependent upon Malayan, without any
Sections 4 (a), (ii) (C)68 and 4 (b),69 ownership of the reserved units is equivalent prestation on the part of St. Francis. Even if the obligation is
in doubt during the intervening period from completion of the project unilateral, Malayan cannot appropriate all the civil fruits received
and final determination of costs because of the phrases "shall be because it could be inferred from the nature and circumstances of the
delivered to ASB" and "Malayan shall be entitled." Clearly, that the obligation that the intention of the person constituting the same was
ownership of the reserved units shall be determined only upon different. Section 9(b) of the MOA states that in the event that Malayan
completion of the project and the determination of the ARCC, because shall pay additional cost and expenses in excess of the RCC, it shall be
only then could it be computed if there is an excess ARCC over the RCC. entitled to such net saleable areas indicated in Schedule 4 that
corresponds to the increase in the remaining construction costs, while
St. Francis shall be entitled to such remaining areas, if any.
The CIAC observed that had the computation been done on the
completion date of the project on June 7, 2006, there would already
have been an allocation of ownership over the reserved units. Since the As aptly noted by the CIAC, the determination of the ARCC should have
determination of the ARCC was doneonly almost three (3) years later been made upon the date of completion of the project on June 7, 2006,
during the arbitration proceedings, the issue had arisen as to who but it was only about 3 years later during the arbitration proceedings
between the parties is entitled to the rental income from the reserved that such determination was done. Not until now has the issue of the
units which are deposited in the account of Malayan. correct computation of the ARCC been finally resolved. Such long delay
in the determination of the ARCC and the proportionate distribution of
units in the project could not have been the intention of the parties. The CIAC that the parties claims for attorneys fees must be denied. As held
Court, therefore, sustains the CA and the CIAC rulings that the income in ABS-CBN Broadcasting Corporation v. Court of Appeals:73
realized from the reserved units from the completion date until
present, should be considered as having been received by Malayan in The general rule is that attorneys fees cannot be recovered as part of
trust for such party that shall be determined to be the owner thereof. In damages because of the policy that no premium should be placed on the
light of the determination of the excess of the ARCC over the RCC, the right to litigate. They are not to be awarded every time a party wins a
income should be proportionately shared as follows: 30% for Malayan suit. The power of the court to award attorneys fees under Article 2208
and 70% for St. Francis. Subject to proper accounting, upkeep expenses demands factual, legal, and equitable justification. Even when a
for the reserved units should also be shared by the parties in the same claimant is compelled to litigate with third persons or to incur expenses
proportion. to protect his rights, still attorneys fees may not be awarded where no
sufficient showing of bad faith could be reflected in a partys
G. Counterclaims, Attorneys fees and Arbitration costs persistence in a case other than an erroneous conviction of the
righteousness of his cause.
Counterclaims
Arbitration costs
Having determined above that the ARCC does not exceed the RCC and
the total aggregate value of the reserved units, the Court joins the CA The CIAC held that arbitration costs shall be maintained at the same
and the CIAC in ruling that Malayan is not entitled to its counterclaims. level as initially shared based on the pro rata sharing in accordance
with the amounts claimed and counterclaimed by the parties. Stating
Attorneys fees that Section 1, Rule 14274 of the Rules of Court suppletorily applies to
arbitration proceedings since there is no corresponding provision in
The CIAC denied for lack of factual or legal basis the parties respective the CIAC rules of procedure, the CIAC ruled that there are good reasons
claims and counterclaims for the award of attorneys fees. It noted that to maintain their initial pro rata sharing thereof, considering that their
the parties failed to point out the contractual stipulation on attorneys respective claims and counterclaims have merits. Thus, it is just and
fees and expenses of litigation in support of their respective claims equitable that both Malayan and St. Francis pay for their respective
therefor. According to the CIAC, based on its extensive discussions shares based on proportionate cost or amount of the claim. In contrast,
made in disposing the claims and counterclaims of the parties, it is clear the CA ruled that arbitration costs shall be maintained pro rata in
that the two exceptions71 under Article 2208 of the New Civil Code accordance with the parties respective shares in the reserved units.
cited by St. Francis and Malayan do not obtain in this case. The CIAC
explained that Malayans denial of St. Francis claims cannot be After reviewing the conflicting rulings of the CIAC and the CA on
characterized as made in gross and evident bad faith, and that the arbitration costs, the Court finds the one rendered by CIAC to be in
disallowances of the ARCC in favor of St. Francis disprove that the filing accord with law. Unlike the CAs ruling which is based only on the MOA
of the arbitration case was "clearly unfounded." The CA affirmed the provision on distribution and disposition of reserved units, the CIACs
CIAC. ruling is based on the Amended Terms of Reference (TOR) which
specifically provides that the costs of arbitration shall be on a pro
Finding that none of the exceptions under Article 220872 of the New rata basis subject to the determination of the CIAC which of the parties
Civil Code is present in this case, the Court agrees with the CA and the shall eventually shoulder such costs or the mode of sharing thereof.75
Citing Section 1, Rule 142 of the Rules of Court, the CIAC found it just Based on the parties claims and counterclaims involving the total
and equitable that both Malayan and St. Francis pay for their respective disputed sum of P228,814,375.17, the arbitration expenses in the total
shares based on the pro rata sharing in accordance with the amounts amount of P1,064,517.38 should be shared in the following proportion:
claimed and counterclaimed by the parties. Under the amended TOR,
the Summary of Claims/Counterclaims and the arbitration expenses are 1. St.
as follows: P 936,775.2
Francis:P202,161,179.09/P228,814,375.17=0.8
9
8 x P1,064,517.38 =
CLAIMANT [St. Francis] 2. Malayan:
Value of Reserved Units P 139,519,969.17 P26,653,196.08/P228,814,375.17=0.12xP1,064 127,742.09
being claimed 41,190.550.59 ,517.38 =
P1,064,517.
Total Arbitration Expenses =
P 180,710,519.76 38
Income 21,150,659.33
Attorneys fees 300,000.00 WHEREFORE, premises considered, the Court of Appeals Decision
dated January 27, 2011 in CA-G.R. SP Nos. 109286 and 109298,
is AFFIRMED with the following MODIFICATIONS:
P 202,161,179.09
RESPONDENT [Malayan] 1) The total amount of P57,474,561.39 should be deducted and
Actual damages P24,653,196.08 excluded from the gross Actual Remaining Construction Cost
Attorneys fees 2,000,000.00 (ARCC) of P562,866,135.02 to arrive at the net ARCC of
P505,391,573.63;
P 26,653,196.08
2) Malayan is entitled to 30% ownership over the reserved
TOTAL SUM IN DISPUTE P 228,814,375.17
units (P52,966,724.63/P175,856,325.05), together with the
corresponding interest in the income realized thereon in the
xxxx same proportion; while St. Francis is entitled to 70%
(P122,889,598.42/P175,856,325.05) ownership of the said
IX ARBITRATION EXPENSES BASED ON A SUM IN DISPUTE units, as well as to its corresponding share in the said income.
OF P228,814,375.17 The distribution of the parties proportionate share in the units
shall be made by drawing of lots;
Filing Fee P 91,009.98
3) Malayan is directed to deliver possession and transfer title
Administrative Fee 92,329.98
over the reserved units in the proportion above stated, to pay
Arbitrators Fees 629,566.60 St. Francis its proportionate share of the income from the
ADF 214,566.60 reserved units reckoned from the date of the completion of the
TOTAL P 1,064,517.3876 project on June 7, 2006 up to the finality of this decision, and to
render full accounting of all the upkeep expenses, rentals and
such other income derived from the reserved units so awarded
to St. Francis;

4) Arbitration costs are maintained pursuant to the pro


rata sharing that the parties had initially shared in accordance
with the amounts claimed and counterclaimed by them,
namely, St. Francis: P936,775.29; and Malayan: P127,742.09;

5) Malayan and all others claiming rights under it, are enjoined
from exercising acts of ownership over the reserved units
relative to the proportionate share awarded to St. Francis;

6) The Register of Deeds of Pasig City is directed to


immediately reinstate the name of St. Francis Square Realty
Corporation (formerly ASB Realty Corporation) as the
registered owner in the corresponding Condominium
Certificates of Title covering the reserved units awarded to St.
Francis; and

7) All other awards granted by CIAC in its Award dated May 27,
2009 which are not affected by the above modifications are
affirmed. No costs.

SO ORDERED.

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